What were once regarded as standard revenue models for utilities are changing worldwide.
Start with New York, where recent reforms to how utility revenues are structured under the state’s Reforming the Energy Vision (REV), may serve as a template for a new and diverse revenue model concerning 21st century power providers.
Writing for UtilityDIVE, Gavin Bade provides this succinct perspective:
“The REV docket aims to convert utilities into platform providers for the distribution grid — akin to an air traffic controller that facilitates the interconnection and management of a diversity of distributed resources. Key to that goal is the reform of utility revenue and ratemaking models so that utilities are incentivized to maximize system efficiency and encourage the deployment of third-party resources, like rooftop solar and storage.
“Last July, regulators floated a series of new revenue opportunities aimed at addressing those issues. In addition to earning a rate of return on traditional grid investments, utilities would be encouraged to leverage new market opportunities based on their role as platform providers and respond to new performance metrics laid out by regulators on energy efficiency and customer engagement.”
Reforming traditional utility business models
How utilities generate revenue has been challenged, Bade points out. “For over a century, utilities have made money predominantly through investments in large-scale grid infrastructure like transmission lines and power plants — a system called cost-of-service regulation.”
Enter a new world of acronyms, where items like distributed energy resources (DERs), platform-service revenues (PSRs), and Earning Adjustment Mechanisms (EAMs) fit into a complex accounting format. For more detail on the fiscal complexities of what utilities are facing, read this recent UtilityDIVE post.
New York’s REV initiative commences:
“The electric industry is in transition. Technological innovation and increasing competitiveness of renewable energy resources, combined with aging infrastructure, extreme weather events, and system security and resiliency needs, are all leading to significant changes in how electricity is generated, distributed, managed and consumed. New York State must lead the way to ensure these trends benefit consumers, whose lives are so directly affected by how they procure energy.
“The availability of reliable, resilient, and affordable electric service is critical to the welfare of citizenry and is essential to New York’s economy. To ensure continuing economic growth and prosperity for New York, Governor Andrew M. Cuomo laid out an ambitious energy agenda for the State in 2015, with the Public Service Commission (PSC) playing an important role in crafting the significant regulatory changes needed to make the Governor’s agenda a reality.”
We watch with interest as the electrical grid and the providers of its power undergo what appears to be a revenue transformation, all for the better.
Image via Shutterstock